EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The EPAct Tax Aspects of LED Lighting for Chicken Chains

Chicken is a major national chain food category primarily sold by both
chicken focused restaurants and by major hamburger chains. With this level of
competition operating cost management is critical and low wattage energy saving
long life LED lighting is being quickly adapted. LED lighting normally
qualifies for Section 179D tax incentives.

Code Section 179D EPAct Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Code Sec. 179D, as enacted by EPAct,
commercial property owners or primary designers in government projects making
qualifying energy-reducing investments in their new or existing locations can
obtain immediate tax deductions of up to $1.80 per square foot.

If the building project does not qualify for the maximum
$1.80-per-square-foot immediate tax deduction, there are tax deductions of up
to $0.60 per square foot for each of the three major building subsystems:
lighting, HVAC (heating, ventilating, and air conditioning) and the building
envelope. The building envelope is every item on the building’s exterior
perimeter that touches the outside world including roof, walls, insulation,
doors, windows and foundation.

Undertstanding the EPAct Tax Incentive Math

Table A represents the EPAct potential tax deductions for the leading
chicken chains as well as a LEED designed chicken chain:

LED Lighting EPAct Tax Deductions

Existing chicken chains are quickly moving to low wattage long life LED
lighting which normally qualifies for the full EPAct lighting tax deduction.
Starting with their store in Indianapolis, KFC has installed LED lighting with
the goal of energy efficiency & economic responsibility. The building is
designed to use 25 percent less energy and water than a typical KFC restaurant.
It features energy-efficient cooking equipment, low-power, long-life LED
lighting, locally sourced building materials, parking preference for hybrid
vehicles, fixtures designed for lower water use, waste recycling, and many
other green innovations.

LED/LEED Combination

LEED stands for Leadership in Energy and Environmental Design and is the
renowned standard for sustainable buildings in the United States . In
conditioned (cooled) LEED buildings, air conditioning is the largest building
energy user. Conditioned LEED buildings will qualify for a LED lighting tax
deduction of $1.80 per square foot when the buildings HVAC system is very
energy efficient.

To qualify for the $1.80 LED lighting tax deduction the building must be
modeled in IRS approved software. Building owners should utilize tax engineers
who are intimately familiar with the EPAct building modeling process. An
experienced tax engineer will be able to confirm before the LED LEED building
lighting installation whether it is likely to qualify for the $1.80 LED
lighting tax deduction.

In 2009, the Northampton, Massachusetts KFC/Taco Bell received LEED Gold
certification. The restaurant was designed to use 30 percent less energy and
water. It uses solar energy to preheat fresh air coming into the building which
reduces the use of natural gas, and a lighting control system that maximizes
the use of natural light.

Additionally, Chick-fil-A at Montgomery Plaza in Fort Worth, Texas is the
chain's first restaurant built to LEED Gold standards. To achieve energy
efficiency, the location’s sustainable features include low-flow fixtures
and rainwater harvesting for use in landscape irrigation as well as natural
daylighting, resulting from skylights and windows, and energy efficient
appliances. As a result, Chick-fil-A at Montgomery Plaza uses 14% less energy
than industry standards. Chick-fil-A will integrate these energy conservation
measures into all new restaurant construction. By the end of 2012, over half of
the chain’s 1,600+ restaurants will receive energy and water retrofits.
These enhancements are part of the company’s commitment to energy
conservation and are expected to result in significant cost savings for each
restaurant.

Conclusion

Crossing the road and switching to LED lighting can result in large tax
savings. To get to the other side, operating cost management is critical and
low wattage energy saving long life LED lighting is essential to gain
significant EPAct tax savings.